17th November 2014

SINGAPORE'S economy is likely to get a lift if the world's top leaders
deliver on their promise to boost global growth by an extra 2.1 per cent over
the next four years.

Although domestic growth is currently constrained by labour and land
limitations, a stronger world economy will support trade-dependent Singapore's
exports and draw more investments here, Prime Minister Lee Hsien Loong told
reporters yesterday.

In an interview on the sidelines of the Group of 20 (G-20) summit, PM
Lee said Singapore has "every interest in a vibrant global economy"
as "our markets are around the world".

G-20 leaders agreed yesterday to put in place a package of measures to
add 2.1 per cent to global growth and create millions of new jobs by 2018.

PM Lee also spoke about other topics that surfaced at the Brisbane
summit over the weekend, including infrastructure projects, climate change and
the impact of the Republicans' recent sweep of Congress on the United States'
foreign policy.

Infrastructure, one of the key pathways by which the G-20 aims to heat
up a cooling world economy, is of particular interest to Singapore, he said.
Many local firms - including Keppel Corp, Sembcorp Industries and Hyflux - are
infrastructure specialists. Singapore is also home to the World Bank's
Infrastructure Finance Centre of Excellence, which advises countries on how to
structure the financing of their projects.

If multilateral initiatives like those kicked off by the G-20 and World
Bank succeed in promoting more infrastructural developments in rapidly growing
South-east Asia, Singapore firms can capitalise on these business
opportunities, PM Lee added.

In response to a question on climate change - which entered the G-20
agenda after the US and Japan pledged US$4.5 billion (S$5.8 billion) over the
weekend to help poor countries invest in clean energy and cope with extreme
weather - PM Lee said more will be discussed at upcoming meetings of the United
Nations Framework Convention on Climate Change.

But he hailed the pledge by the US and Japan to the Green Climate Fund
as "a good sign" and welcomed the surprise US-China agreement last
week to curb carbon emissions. "These are the two biggest emitters in the
world. And if they can work something out, I think the rest of the pieces have
a chance of falling into place."

Turning to the US, PM Lee noted that the Republicans have generally been
keener on free trade and have taken a more "internationalist" view of
the US' role in world affairs, including in Asia, than the Democrats.

But whether a "thoroughly Republican" US Congress will agree
to work with a Democrat president, even if they agree on the same principles,
remains to be seen, he added.

Yesterday, PM Lee rounded off his trip to Brisbane with a dinner reception
at the Tattersalls Club, attended by about 270 Singaporeans based in the
Australian city. He gave a speech exhorting them to maintain their links to
home, especially during Singapore's 50th birthday celebrations next year.

Mr Thompson Wong, 24, said it was a "timely reminder". The
final-year communications student at the University of Queensland added that
his school's Singapore Students Society plans to organise a few "special
surprises" next year for Singaporeans in Brisbane.

Confidence
downtrend echoes findings from official surveys on business expectations

Source: Business Times / Government & Economy

BUSINESS
sentiment soured in the third quarter of 2014, with pessimistic companies
outnumbering sanguine ones for the first time in a year, according to the
latest BT-UniSIM Business Climate Survey.

Of the 160 companies that responded to the survey in
late September and mid-October, 38 per cent expect business prospects to worsen
over the next six months, while 29 per cent foresee better conditions.

After weighting these responses by size and sector,
the overall net balance in business prospects fell 6 points to -2 per cent. The
net weighted balance is a common measure of the nature and extent of business
sentiment, showing the difference between the proportion of firms that are
optimistic and those that are not.

The swing
back into negative territory reversed three quarters of positive business
prospects net balances. In fact, Q4 2013's positive net balance of 4 per cent
marked the first optimistic showing in over two years.

The downtrend in confidence in Q3 echoes findings from
official surveys on business expectations, conducted around the same time.
Quarterly polls by the Department of Statistics (DoS) and the Economic
Development Board (EDB) showed that business optimism has waned across both the
services and manufacturing sectors. And although there continue to be more
optimistic firms than negative ones, the magnitude of positive sentiment has
gone down.

While survey director Chow Kit Boey attributed the
pessimism to turbulent events overseas - citing uncertainties from Ukraine,
Ebola and the Islamic State in Iraq and Syria (ISIS) - private sector
economists think companies could be tempering their expectations due to a
patchy global recovery and domestic labour constraints.

Said CIMB economist Song Seng Wun: "With the IMF
(International Monetary Fund) and the World Bank downgrading their global
growth outlook, it's undeniable that there is uncertainty surrounding the
global pace of growth - particularly in places like the eurozone and China. As
for companies that are more Singapore-centric, they are still facing manpower
and rising cost constraints."

UOB economist Francis Tan also noted that construction
companies' poor sentiment could have pulled down the overall response.

Business expectations aside, the three other
indicators tracked by the BT-UniSIM survey - sales, profits and new orders -
reflected a weak improvement in business activity.

"The pick-up in business activity observed in the
previous quarter continued weakly in Q3 2014. There was slightly less
contraction in sales and profits while new orders virtually stagnated,"
said Ms Chow.

The quarterly survey's net balances, which have shown
a strong correlation with GDP growth over its 19-year history, now predict that
the Singapore economy will grow 2.4-2.8 per cent year-on-year in Q4, and up to
3.1 per cent for the full year.

Economists from DBS, CIMB and UOB agree that these
forecasts "sound about right"; the median forecasts of private sector
economists polled by Bloomberg stand at 3.1 per cent for Q4 2014 and 3.3 per
cent for the full year.

Last month, the Ministry of Trade and Industry (MTI)
said that, based on advance estimates, Singapore's economy grew 2.4 per cent
year-on-year in Q3, similar to the 2.4 per cent growth rate shown in the second
quarter. Economists polled by Bloomberg say MTI may revise this upwards to 3.2
per cent, when it releases final growth figures this month.

As for the
one country that holds out the best business prospects for firms in the next 12
months, the most cited was Indonesia. China and Singapore shared second place.

Said Ms Chow: "The annual topic on countries
holding the best business prospects in the next 12 months reveals declining
prospects in China since 2006 and rising prospects in Indonesia. Vietnam and
the United Arab Emirates (Dubai) have not been among the three most-cited
countries since 2008."

Industrial sector comes out tops in sales,
profits, new orders, business prospects

Source: Business Times / Government & Economy

Last month, the
Ministry of Trade and Industry (MTI) said the economy expanded 1.2 per cent on
a seasonally adjusted quarter-on-quarter annualised basis, according to advance
estimates. This marked a reversal from the 0.1 per cent contraction in Q2.

Units at the Geylang East condo fetch an
average S$1,416 psf, including a 5% early bird discount

Source: Business Times / Real Estate

Tre Residences in Geylang
East sold a fifth of its 250 units at its launch over the weekend. The units
were sold at an average S$1,416 per square foot (psf) including a 5-per
cent early bird discount. Its developer, marketing agent, and other consultants
agreed that this was an encouraging result, very much in line with expectations
given the current lukewarm market.

THE red
lights that dot Geylang might reflect the area's seamy side, but they have not
stopped developers from flocking in with new condominium projects.

The area,
bounded by Sims Way and Paya Lebar Avenue, has seen a flurry of new launches
over the past three years - at least one has sprung up on each of its famous
lorongs, or streets.

Despite its
colourful history, rental yields there are among the highest of any suburban
residential district, experts say. Leasing activity is tipped to surge with the
formation of a commercial centre at nearby Paya Lebar Central.

"Rental
yields are as high as 5 per cent, when market norms are about 3 per cent, simply
because tenants are prepared to rent rooms rather than the whole unit. A
two-bedder could be leased out for about $1,000 per room."

The area's
proximity to the city centre and business district is a draw for office
executives, most of whom are Chinese tenants attracted by a fast-forming
Chinese community there, market watchers say.

Among the
developers keen to cash in on this appeal, the newest kid on the block is a
joint venture by MCC Land, Sustained Land and Greatview Development. Its TRE
Residences at Geylang East Avenue 1 lies on the "right side" of the
red-light district.

The 250-unit
project is being launched today. Indicative starting prices range from $693,500
for a 420 sq ft one-bedder to $1.36 million for a 947 sq ft four-bedder, said
MCL Land.

TRE comes
ahead of a larger project by GuocoLand at Sims Drive - the 1,024-unit Sims
Urban Oasis - which is due to be launched early next year.

Older
completed developments such as the 262-unit Central Grove have achieved capital
gains, with a 1,206 sq ft unit selling for a profit of $686,000 in September
and a 1,277 sq ft unit bringing in a profit of $716,000 in July.

The price
works out to about $1,000 per sq ft (psf) - a level that R'ST Research director
Ong Kah Seng deems "attractive" for a "well-located"
project.

He noted
that an upcoming mixed-use development, with a potential gross floor area of
1.78 million sq ft, in Paya Lebar Central is likely to draw in MNCs looking for
office space. Thus, investors could benefit from rental demand from Asian
professionals working in the area.

NEW Housing
Board flats have become more affordable relative to applicants' household
incomes, compared with last year.

But while
the gap is closing, National Development Minister Khaw Boon Wan's target of
having new flats priced at about four times the applicants' median income has
not been reached.

When Mr Khaw
set that target last year, the price ratio was about 5.5 times annual salary.
Now it is lower for all flat sizes.

A new
two-room flat is the most affordable. At $55,000 after grants, it is less than
three times the median household salary of such applicants (see table).

After
grants, three-room flats cost 4.57 years of salary. Four- and five-roomers are
less accessible, at 5.26 times and 5.36 times applicants' salaries
respectively.

These
calculations are based on average Build-To-Order (BTO) flat prices in
non-mature estates, given by the Ministry of National Development in a
September parliamentary reply, and applicants' median income as given in the
September BTO.

High BTO
prices caused unhappiness around the last general election in 2011. At the
time, they were linked to HDB resale prices, which had been soaring.

After the
elections, delinking BTO prices from the resale market stopped them from
rising, as Mr Khaw noted during last year's Committee of Supply debate.

"We can
now pause and see what else we can do to bring BTO prices in non-mature estates
to, say, around four years of salary as it was before the current property
cycle started," he said then.

Though the relative
prices of BTO flats have fallen since Mr Khaw's speech, most of the flats still
cost more than four years of an applicant's salary.

But experts
pointed out that the picture improves if overall household incomes are
considered, not just those of applicants.

Last year,
the overall median household income was $7,030 a month.

The price of
the median house type - a BTO four-roomer - was $295,000, or about 3.5 years of
income, noted Singapore Management University economist Phang Sock Yong.

For resident
employed households, which mainly exclude retirees, the median income was even
higher, at $7,872 a month.

Using this
as a reference, the price of $386,000 for a five-room flat "looks
reasonable" at about four times one's annual salary, said National University
of Singapore associate professor of real estate Sing Tien Foo.

NUS
economist Tilak Abeysinghe prefers to compare house prices with lifetime
income, with a price under 30 per cent considered affordable in the long run.

"A
crude comparison indicates that a house price four times the annual income
falls in the highly affordable range," he said.

Even the
five-roomer, at 5.36 times the annual income, falls within the affordable range
for that income group, he added.

Nor should
we expect all flat types to be equally affordable by this ratio, said experts.

Larger flats
cost more times one's income because public housing is priced "according
to ability to pay", said Prof Phang.

Housing
affordability is not just about setting prices, but encouraging a match between
house type and household income level, said Prof Sing.

"Lowering
housing prices for larger flats is not a good strategy or policy... it may
induce some lower-income households to buy large houses, which could further
distort the housing price to income ratio," he said.

THIS autumn,
federal regulators made a controversial decision to back down from tough new
underwriting standards for mortgages. Some affordable-housing advocates, allied
with parts of the corporate housing industry, had successfully argued that the
proposed standards would make it too hard for people to qualify, thereby
reducing home ownership and hurting the housing market. Last summer, that same
trump card stopped a bipartisan Bill to reform the mortgage market, more than
six years after Fannie Mae and Freddie Mac had to be taken over by the
government.

All of this
ignores a crucial fact: Much, and at times most, of what happens in the
mortgage market doesn't have anything to do with home ownership. A sizeable
percentage of mortgages - including most of the risky ones that were made in
the run-up to the financial crisis - are not used to buy a home. They are used
to refinance an existing mortgage. When home prices are rising and mortgage
rates are falling, many home owners choose to replace their mortgage with a
bigger one, taking the difference in cash. In other words, mortgages are a way
to provide credit.

Refinancing
is a relatively modern phenomenon. According to Mr Joshua Rosner, a managing
director at research consultancy Graham Fisher & Company, by 1977, only 8
per cent of home owners had ever refinanced. By 1999, 47 per cent had
refinanced at least once. By the peak of the bubble, home owners were
extensively using refinancings to extract cash. Mr Rosner also points out that
while home ownership peaked in 2004, home prices peaked in 2006, because refinancing
drove up prices.

One of the
most abjectly false narratives about the financial crisis is that risky
mortgages proliferated so that people who couldn't afford homes could
nonetheless buy them. Modern subprime lending was not about home ownership.
Instead, the 1990s crop of subprime mortgage makers allowed people with bad
credit to borrow against the equity in their existing homes.

According to
a joint HUD- Treasury report published in 2000, by 1999, a staggering 82 per
cent of subprime mortgages were refinancings, and in nearly 60 per cent of
those cases, the borrower pulled out cash, adding to his debt burden. The
report noted that "relatively few subprime mortgages are used to purchase
a house".

According to
the financial statements of New Century, the huge lender whose bankruptcy in
early 2007 helped kick off the financial crisis, cash-out refinancings were
64.2 per cent and 59.5 per cent of its business in 2003 and 2004; home purchase
loans made up only 25 per cent to 35 per cent for the two years.

A New
Century executive told Congress its customers needed to "tap into their
home equity to meet other financial needs, such as paying off higher-interest
consumer debt, purchasing a car, paying for educational or medical expenses and
a host of other personal reasons". I'll always remember seeing a bank ad
blowing in the windy, bleak Chicago winter of 2009. "Let your home take
you on vacation," it read.

According to
Mr Jason Thomas, now director of research at Carlyle Group, only about a third
of subprime mortgages that were turned into mortgage-backed securities between
2000 and 2007 were used to buy homes.

Putting the
financial crisis aside, the logic behind this is completely messed up.

If we want
homes to be a vehicle for saving and building wealth, as they used to be, why
are we instead encouraging people to increase their indebtedness? Even worse,
we now know that too much credit results in people who once owned their homes
losing them. It creates homelessness, not home ownership.

The problem,
of course, is that the conflation of home ownership and consumer credit is so
convenient for the powers that be. It allows lenders to cloak themselves in the
American-as-apple-pie mantle of home ownership, thereby making it less likely
that anyone will crack down on their practices. It allows members of Congress,
many of whom depend on the financial industry for campaign contributions, to
pretend that something that's bad for us is actually a good thing for which we
should be grateful.

There's an
argument that refinancing doesn't much matter today. Because interest rates
can't go much lower, and home prices aren't skyrocketing, "refis"
will be a smaller part of the market. According to Freddie Mac, 28 per cent of
borrowers took cash out in the third quarter of this year. But that's still a
significant percentage of the market, and ideally, we're setting up a housing
finance system that should be right not just for now, but for decades to come.

One possible
solution would be much tougher standards for cash-out refinancings than for
mortgages used for purchases, such as requiring far more equity in a home, or
making lenders keep the loan on their own books instead of selling it. Or
perhaps Fannie Mae and Freddie Mac shouldn't be allowed to guarantee payment on
a mortgage unless it is used to purchase a primary residence.

In
Washington, there's been scarce public discussion of this. But if we're going
to put government resources behind home ownership, and engage in practices that
threaten the safety of the financial system in the name of home ownership,
shouldn't we at least talk about the fact that we're actually encouraging the
opposite?

POLICYMAKERS
need to consider the relationship between home ownership and asset
appreciation.

As the
majority of Singaporeans became home owners, policymakers may have conflated
the goal of home ownership with that of asset appreciation. This is mostly
misguided. While house price inflation provides a boost to consumption because
of the wealth effect, this benefit has to be weighed against its costs.

Not only do
rising house prices cause anxiety for new households looking for a home, but
they also have socially corrosive effects. For example, if house prices
increase more rapidly than wages over a sustained period, people may begin to
view financial speculation or investing in property as a more reliable way of
securing income gains than through their own labour.

The increase
in speculative activity and the shift in social attitudes with respect to how
money can be made (rental income and capital gains instead of wages) erode
society's work ethic, increase status competition and envy, and divert
society's resources from productive activities to less productive and
potentially destabilising ones.

The basic
dilemma for our housing policymakers is that, as Singapore is a global city
with liberal immigration policies for highly skilled individuals and open
capital markets, its high-end private property prices will rise towards those
in other global cities. These forces in turn exert upward pressure on mass
market private home prices and, to some extent, HDB resale prices.

In the
context of Singapore's new status as a global city, the Government has to be a
lot more deliberate and activist in managing both HDB and overall house price
appreciation. Sky-high private property prices exacerbate the sense of
inequality, reduce social mobility, and increase the risks of destabilising
housing booms and busts. These structural changes suggest that a new paradigm
in public housing is needed. This paradigm should include the following
features. First and foremost, the HDB should once again embrace affordable
housing for the majority of Singaporeans as its primary mission. While
improvements in the design of HDB flats are desirable, they should not come at
the expense of affordability.

To ensure
affordability, the Government should strive to keep the house affordability
index - the ratio of house price to the buyer's annual income - well below
four, preferably around three. A new four-room HDB flat in Pasir Ris is priced
at about $300,000. This is five times the median household's annual income of
$60,000, well above what financial advisers consider prudent. Such flats should
be priced closer to $200,000.

In a similar
vein, entry-level three-room flats should be affordable for the 21st-30th
percentile of households with annual incomes of around $40,000. This suggests a
new flat price of around $120,000, which was the price of such flats about a
decade ago. Given the real possibility of slow median wage growth relative to
house prices, the first order of business for the HDB should be to restore and
sustain the affordability of housing for the majority of citizens.

Second, to
manage property prices more generally, the Government should consider setting
itself a general house price inflation target. This target should comprise of
inflation targets for public housing and inflation targets for private housing.
The HDB flat inflation target could, for instance, be set at levels consistent
with (expected) median wage growth. Above this inflation target, the Government
should have to explain why it exceeded the target. Compared with other markets,
the housing market is particularly prone to speculative booms and busts. This
makes it even more critical for the Government to take proactive steps to
prevent house prices from rising excessively, and to pre-empt housing bubbles
from developing.

With general
inflation, it may not be realistic for the Government to adopt inflation targets
as Singapore imports almost all its goods (and many of its services) and
therefore has little control over externally induced price increases, other
than through appreciation of the exchange rate.

With home
prices, however, it is quite reasonable for the Government to consider adopting
inflation targets. Not only is the Government the biggest landlord by far, but
it also has a number of microeconomic and regulatory tools at its disposal to
affect the rate at which home prices are increasing.

Third, public
housing policy needs to be rethought in the context of demographic and economic
changes. When the population was young and incomes were rising across the
board, public housing was an efficient and incentive-compatible way of
spreading the fruits of economic growth. It was also a good way of helping
Singaporeans achieve social mobility and build up their assets for retirement.

The rapid
ageing of the population also suggests that the focus of government policy has
to shift from enabling asset accumulation to helping Singaporeans unlock and
monetise their housing assets. At the same time, slower income growth and
relative wage stagnation for a sizeable segment of the workforce highlight the
need for more social transfers. No longer can public housing serve as the de
facto instrument of income redistribution.

RECENTLY, a
Singaporean colleague of mine told me that he was considering balloting for a
Build-to-Order (BTO) flat as his wife, a permanent resident, had just given
birth.

The location
of the BTO launch is near my parents' place and I have also been giving
upgrading some thought, as my wife - a work permit holder - is expecting our
first child in a couple of months.

My colleague
checked the eligibility criteria on the Housing Board's website and found that
he was able to purchase up to a new five-room flat. I also checked out the
website. After keying in my particulars, I was dismayed to see that I am
eligible to buy only a new two-room flat in a non-mature estate.

My salary is
higher than my colleague's, so why can't I get a bigger home?

I then
changed my wife's details from work permit holder to permanent resident and,
like magic, found that we could buy up to a new five-room flat with no
restrictions.

I would like
to know how the HDB decides that I - a locally born Singaporean who has
completed his full 13-year national service cycle - do not have the right to
buy a flat of my choice just because my wife is a work permit holder.

It is not
our fault that her application for permanent residency had been denied.

At New York City's swankiest new apartments,
private spaces have become quite public

Saudi Arabia’s Fawaz Alhokair Group plans to raise $2 billion from the initial public offering of its Arabian Centres malls unit, surpassing a similar sale by rival Dubai operator Emaar Properties PJSC (EMAAR) earlier this year.

A financial adviser for the sale of the 30 percent stake will be hired before the end of the year, Muhanad Awad, chief executive officer of FAS Capital, the financial and investment arm of Fawaz Alhokair Group, said yesterday by phone. The IPO will probably take place on the Saudi Stock Exchange in 2016, he said. Arabian Centres owns 15 malls in Saudi Arabia with nine more under construction. It also has one outlet in Egypt.

“We’re still in the early stages of working on this and discussing with potential financial advisers,” Awad said. “The offering will be similar to what Emaar Malls did, maybe a bit bigger. We’ll raise about $2 billion or a little more.”

At $2 billion, the IPO would surpass the $1.6 billion raised in September by Dubai’s Emaar Malls Group PJSC, operator of the world’s largest shopping center by area. Emaar, which sold 15 percent of its unit, attracted 104 million visitors to its malls in 2013, compared with more than 140 million shoppers at Arabian Centres developments such as Jeddah’s Mall of Arabia.

Market Opening

Saudi Arabia is preparing to open up its $548 billion stock exchange to foreign investors in the first half of next year, spurring investor interest in the largest Arab economy. The Capital Market Authority in August proposed rules that would allow foreign investors to hold as much as 10 percent of the value of the stock exchange.

The exchange has gained 12 percent this year, encouraging companies to consider share sales. National Commercial Bank raised $6 billion from retail investors earlier this month in the second biggest IPO of the year, behind Chinese e-commerce business Alibaba’s $25 billion IPO in September. ACWA Power International is also considering a $1.1 billion IPO, people with knowledge of the matter said earlier this year.

Fawaz Alhokair Group listed its Alhokair Fashion Retail unit on the Saudi Stock Exchange in 2006. It’s also known as Fawaz Abdulaziz Alhokair & Co.

Companies in Saudi Arabia have raised $7.1 billion from the equity markets this year, according to data compiled by Bloomberg, with the $6 billion National Commercial Bank offering accounting for the bulk of that activity. Last year, they raised $216 million.

Asking prices for London homes barely rose this month and values across the U.K. declined as the property market paused for breath, according to Rightmove Plc.

Prices sought in the capital increased 0.8 percent from October, when they surged 7 percent, to a record 601,180 pounds ($940,000), the property website said today. Across England and Wales, they fell 1.7 percent ahead of the seasonal winter slowdown, Rightmove said.

The report adds to evidence of a loss of momentum as record prices and speculation about a so-called mansion tax curb demand, particularly in London where values are more than double the national average. Supply shortages in some parts of the country could push prices up again in 2015, Rightmove said.

“Affordability and politics are intervening to slow down both the pace of price growth and average selling time” in London, said Miles Shipside, a director at Rightmove. A mini-boom in much of the country “has hit the pause rather than the stop button” and “underlying demand remains strong,” he said.

Of the 10 regions tracked by Rightmove, only London and East Anglia posted gains on the month. Declines were led by southwest England and the north, where values fell 3.9 percent and 3.6 percent, respectively.

London’s increase this month took the gain from a year earlier to 16.2 percent. Across England and Wales, prices were up an annual 8.5 percent, compared with 7.6 percent in October.

Nomura Holdings Inc. and Bank of America Corp. say they’ll pay more attention to Chinese developers in 2015, having profited from trades in India,Australia, Korea and Indonesia.

“There’s been a lot of nervousness around the real estate sector in China,” Andrew Tan, Nomura’s head of secondary trading for loans and special situations in Asia ex-Japan, said by phone Nov. 12. “We’ve seen some selloff in terms of some of the bigger names in the loan space which, typically, you don’t see being offered in the market. They are at high yield, stressed levels.”

The number of publicly traded developers with liabilities exceeding equity in China has jumped to 136 out of 334, or more than 40 percent, from 57 in 2007, according to data compiled by Bloomberg. China’s leaders are discussing lowering next year’s economic growth target amid falling home prices and rising inventory.

“A lot of people are waiting for large cracks to occur in China, but it’s hard to pin down exactly when that will happen,” said Kevin Tham, a managing director of Bank of America’s global credit and special situations group in Hong Kong. “Our key themes in 2015 will revolve around deploying capital into more defensive, senior secured loans, while we wait for the next wave of distressed situations to come through.”

Covenant Lite

China’s property industry accounted for 16 percent of the country’s 7.7 percent economic expansion last year, according to the World Bank. A survey of economists by Bloomberg News last month showed an expectation for a growth target of about 7 percent in 2015. Home sales shrank 10 percent in the first nine months of this year, with unsold units equal to 14.4 months of contracted sales, Moody’s Investors Service said in a Nov. 12 note.

Non-performing loans at Chinese lenders jumped by the most since 2005 in the third quarter to 766.9 billion yuan ($125 billion), the China Banking Regulatory Commission said in a statement Nov. 15. Soured credit accounted for 1.16 percent of lending, up from 1.08 percent three months earlier. The People’s Bank of China has injected 769.5 billion yuan into its banking system over the past two months, stimulus that’s done little to ease financing costs for borrowers, according to UBS AG.

Correction Signs

“We see new deals getting printed at higher leveraged levels with lighter covenants, so we need to be vigilant,” said Singapore-based Tan, ahead of the Euromoney Asia-Pacific Distressed Investing & Corporate Restructuring Summit that starts tomorrow in Hong Kong. “Are there signs on the horizon for a correction in the credit space? Definitely.”

China’s last banking crisis was in the late 1990s when years of state directives saddled lenders with soured loans and forced some $650 billion of bailouts over a decade.

Syndicated facilities in China are already a record $46.1 billion this year, according to data compiled by Bloomberg. In Hong Kong, the total $60.1 billion thus far is approaching the record $63.9 billion in all of 2013. Two of 2014’s top 10 borrowers in the city are developers.

Moody’s cut its outlook on China’s real estate market to negative in May. Goldman Sachs Group Inc. turned bearish on property bonds in September, and called them the riskiest part of the Asian junk bond market last month.

Chinese Returns

Along with China real estate, Bank of America expects a “spike in activity in public bonds, particularly mining, infrastructure and offshore drilling vessels,” Tham said. “Each sector has a universe of several billions of high-yield bonds outstanding. We expect a fair number of these names to transition into the distressed space and are adding resources in trading and research.”

Outside of Chinese developers, Nomura is shifting its attention toward coal and iron ore producers because their fortunes are tied to demand from the world’s second-largest economy. The focus is on finding value in “cost efficient” miners and contractors, “those with a fighting chance of survival,” Tan said.

Indian Wins

Nomura lists trades in India among its notable wins in the secondary market this year. Narendra Modi’s election as prime minister in May spurred confidence in India’s economy, spurring an increase in the price of loans from phone operators to steelmakers, he said.

“There was a decent selloff in the loan space by European and Australian banks” in late 2013 and early 2014 before Modi’s election win, Tan said. “That’s one of the themes we have been involved in.”

Nomura and Bank of America snapped up distressed assets in Australia when European lenders and portfolio managers cut their holdings and shifted capital back home as some assets underperformed.

Bank of America also made money over the past 12 months trading BrisConnection’s debt, as well as South Korea’s STX Pan Ocean Co., which filed for bankruptcy in June 2013. That and Indonesian coal producer bonds helped to make 2014 a “standout year,” Tham said.

“Our market making business is up 68 percent in terms of trading volumes driven by increased flow in infrastructure, shipping and commodity names, and we’ve seen strong exits in a number of distressed situations, mostly the 2012 vintages,” he said.

Billionaire Thomas Kwok said that Hong Kong’s pro-democracy protests have hurt revenue at Sun Hung Kai Properties Ltd. (16)’s hotels and bookings for coming months are weaker than a year earlier.

The Ritz-Carlton’s revenue was about 10 percent below expectations for September and October, Kwok, a co-chairman, told reporters after the company’s annual meeting in Hong Kong on Nov. 15. The firm’s other hotels were down by about 5 percent to 10 percent, he said.

Street occupations are entering an eighth week as students press the Chinese government to drop restrictions on how candidates will be nominated in the city’s first one-person, one-vote election of a chief executive in 2017. The protests and limited prospects for export gains are clouding the economic outlook, the government said Nov. 14.

“For the moment, the impact is mild, but we can see room booking orders for coming months are noticeably weaker than last year’s,” Kwok said.

Sun Hung Kai had HK$3.93 billion ($507 million) of revenue from hotel operations in the year ended June 30, or 5.2 percent of the firm’s total, according to an exchange filing. The company’s hotels include Four Seasons Hotel Hong Kong, W Hong Kong and the Ritz-Carlton in Shanghai.

Exchange Link

The company’s shares fell 1.1 percent to HK$115.10 at the close of trading in Hong Kong. The benchmark Hang Seng Index declined 1.2 percent.

Sun Hung Kai, Hong Kong’s biggest developer by sales, won’t slow down its investment pace in the city and mainland China because of short-term factors, Kwok told reporters. The company is optimistic about Hong Kong’s future, especially as the city links its stock exchange with Shanghai’s, he said.

“It means Hong Kong and Shanghai have different roles to play as financial hubs,” he said. The exchange link, which started today, gives foreign investors unprecedented access to China’s $4.2 trillion stock market.

Kwok is on trial in the High Court in Hong Kong, where he denies charges including conspiring to bribe former Chief Secretary Rafael Hui. He didn’t discuss that case at the briefing.